Napster offer hits sour note with music industry

NEW YORK -- Music executives on Wednesday shook off Napster's offer to settle a copyright infringement lawsuit, saying it didn't offer a viable business plan and failed to address security concerns.

The timing of Napster's proposal late Tuesday also struck many industry watchers as odd, coming the night before the Grammy Awards, the biggest annual event on the music calendar.

Music executives also expressed displeasure at Napster's decision to reveal its offer at a news conference.

Sony Music Entertainment said Napster's offer to pay $150 million a year in royalties ''does not make sense'' for an industry with annual revenues of $40 billion.

''Delivering their proposal to the entire industry through the media is not a valid way to address our many concerns,'' Sony said. ''They have still not answered questions we have about a secure system which prevents unauthorized trading, or about how they intend to create a business model that respects the rights of record companies, artists and publishers.''

Last week, Napster suffered a potentially crippling legal setback when a federal appeals court in San Francisco ordered the company to stop allowing copyrighted music to be swapped freely via its service.

Warner Music Group, a unit of AOL Time Warner Inc., EMI and Universal also issued statements calling the Napster proposal inadequate. ''If there's a compelling and convincing business model, we would be interested in participating,'' EMI said.

Among the major music labels, only BMG Entertainment is supportive of Napster's proposal.

The unit of German media conglomerate Bertelsmann has allied itself with Napster, loaning it money and technical expertise as the company tries to make good on a promise to develop by this summer a secure, fee-based system that will compensate artists for their work. Napster says it hopes to start generating income through monthly subscriptions ranging from $2.95 to $9.95. But numerous technical issues remain unresolved, including how files would be protected, accessed and stored.

Napster says it has made progress on addressing those issues, but so far it has not presented a secure system under which music files could be exchanged over the Internet.